Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – February 12th, 2008

Lock In While You Can

I guess the best advice I can give right now, in such a volatile market, is if you have a nice interest rate below six percent, lock in!  While we were at five percent just a few weeks ago, we’ve crept up to about 5.75% (5.917% APR).  Still, a great opportunity for a lot of people to get out of their adjustable rate mortgages while they still can!

Remember last week when I mentioned the trouble that Bond insurer MBIA was in?  “MBIA Inc. reported a $2.3 Billion loss it’s fourth quarter.”  Well, Multi-Billionaire investor Warren Buffett announced Tuesday morning that his company Berkshire Hathaway made an offer to reinsure $800 Billion in municipal bonds backed by not only troubled insurer MBIA, but also insurers Ambac and FGIC.  This was huge news and caused the stock market to rally…causing mortgage backed securities (bonds) to fall between 25 and 32 basis points throughout the early afternoon.  Remember when bonds fall, their yields and interest rates move up!  So when I said in last week’s article, “we’ll have to watch this story closely,” I didn’t realize I would be reporting on it so soon.

Finally some welcome news regarding inflation.  This last week Unit Labor Costs, which is an important measure of inflation, increased at an annual rate of 2.1%.  This was better than the 3.5% expected and what’s important to know here is that better productivity makes it cheaper to produce goods…good for inflation. 

Very Interesting News on the Jobless Claims Front

356,000 claims were reported.  Above the 340,000 expected, however, last weeks numbers were increased from 375,000 to 378,000.  Why such alarm?  In 1990 and 2001, we were “formally” in a recession when the month’s average jobless claims numbers averaged 360,000.  We’re averaging 335,000 currently.  However, the last two weeks have averaged 367,000.  I just report the stuff, people!

Of utmost importance was the signing of HR 5140 Title II of the Economic Stimulus Plan was signed by Bush.  A loan originated between July 1, 2007 and December 31, 2008 may be purchased by FannieMae and FreddieMac as long as the loan amount does not exceed the higher of $417,000 OR 125% of what HUD determines to be the area median home price, with a maximum cap of $729,750.  What does that mean…not much for our area, as the median home price (determined by HUD) multiplied by 125% would bring our area’s loan amounts to approximately $420,000.00.  Since nationwide, the conforming loan limit is $417,000.00 there isn’t much room here to save.  However, if you have friends and relatives in areas around Los Angeles or the Bay Area, some of their medium priced homes could bring conforming rates to loan sizes around this $700,000 range.  A significant savings from the higher rates we’ve seen with loans greater than $417,000.00. 

Best Time To Lock This Week

FYI, last week two times the yield on the 10-year treasury was soaring, while mortgage backed securities remained protected by the 25 and 50 day moving average trends.  So, the best day to lock last week would have been Friday, February 8, after we saw a 19 basis point increase in bonds (and therefore, decrease in rates).  Watch stocks this next week.  If they’re doing well and bouncing back expect higher rates.  If they start to fall again…rates will be lower.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – May 21st, 2007

Sometimes I can be wrong

Slapped in the face, is nothing compared to how I feel after last week. 

A good old fashioned kidney punch is a better metaphor to explain what happened with interest rates over the past seven days.  It’s hard to look like an expert all bellied over, gagging for breath.  First, let’s remember the Fed’s comments on inflationary concerns.  That was really the tip of the iceberg when things started moving in the wrong direction.  It certainly made the picture stronger for investing in stocks, as opposed to bonds.  And the stock market reacted fittingly.  Those comments basically stated that the Fed was still concerned with inflation, concerned that it would, “fail to moderate as expected.” 

Last week’s Consumer Price Index Report

was right in line with where one might hope.  0.2%, lowering the year-over-year core rate to 2.3%.  Better than expected!  However, with the initial concerns and tone of that Fed meeting, we broke below the 200-day moving average, which has worked as a tough buffer between higher and lower interest rates.  Remember that trend lines like the 25, 40, 50, 100, and 200 day moving averages are generally very difficult to move through.  And last week, we did so!  

Wednesday, Industrial Production and Capacity Utilization Reports were released.  Both were hotter than expected, causing us to see that companies may be producing goods and services at a maximum capacity.  This could cause them to increase prices, so another hint of inflation, perhaps not in control, caused bonds to move down slightly.  Thursday reported initial jobless claims at 293,000…the lowest level since January.  And the four-week jobless claim average was at their lowest level in a year.  These numbers are of concern to a tightening labor market.  A tightening labor market means higher paid employees, higher paid employees means higher consumer spending.  Higher consumer spending means higher inflationary concerns.  Higher inflationary concerns means higher interest rates…so if we do not start seeing a reversal of these reporting numbers, there is concern that the next level of support is 44 basis points below this weeks levels.  Which calculates to about a .375% to 0.5% cost in originations fees on a loan amount.  

Not much economic information to report for next week.  With stocks as hot as they are, and money moving out of bonds to get hitched up with the fast paced stock market, it would be difficult for bonds to make much of a move.  What could happen is a reversal of the stock market causing a “safe haven” for a move back into bonds.  However, it’s less likely to happen for a while.  If interest rates are going to start lowering significantly we’ll have to see these economic reports starting to show a calming of inflationary concerns.  Boy, how quickly the markets can change.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – April 2nd, 2007

Well, on Friday the Core Personal Consumption Expenditure Index ended up reporting higher than expectations.  As mentioned in last week’s article about Chico Interest Rates, this could have a negative effect on mortgage backed securities…and guess what…it did.  Particularly due to the fact that the index rose 0.3% higher, in February, than th

e previous month.  This is the largest monthly increase since August and higher than the 0.2% increase that was expected, giving the index a 2.4% reading, when the Fed really wants the index at 2.0% for a few months before considering lowering the overnight rate.  

Remember last week we mentioned “trends” or “averages?”  After Friday’s reports bonds actually faired well for a few hours, however hit the 100-day moving average of bond prices and bounced off that trend line like two opposite poles of a magnet.  Remember, when bond prices move downwardly, their yields move upwardly, causing interest rates to rise.  Currently, we are now focused on the 50 day moving average and the 200 day moving average (both of which are priced below the 100 day moving average).  If we cannot get inflation in line and if this economy continues to have hot reporting indices, than we could be in for a higher interest rate trend throughout the spring.  

This next week has several reports coming out that could move rates, however, the biggest market movers could be Thursday’s Jobless Claims Report and Friday’s Non-Farm Payrolls Report and The Unemployment Rate.  Generally speaking, weaker than expected economic data is good for interest rates.  So, let’s hope that the unemployment rate moves up considerably and new jobless claims spike upwardly too.  This would put homebuyers in a better capacity to buy, with lower interest rates!  It looks as if it’s going to be a rocky spring, so pay close attention to this article and see how the markets can be extremely volatile.  For those of you not sure about the unemployment rate comment, yes, it was a joke.  Until next week….

Subscribe Here To Receive Interest Rate Updates.